New Modification Program Will Be Required by FHFA

Starting this summer, mortgage servicers will be required to offer a new modification program to eligible borrowers who are at least 90 days delinquent on their Fannie Mae or Freddie Mac-owned or guaranteed mortgage, the Federal Housing Finance Agency announced this week.

The new Streamlined Modification Initiative eliminates the requirement that borrowers document their hardship or financial situation, the FHFA said in a release.

As of July 1, 2013, servicers must identify eligible borrowers who are 90 days to 24 months delinquent and send them an offer letter that states the terms of the modification, including the monthly payment required for a Streamlined Modification. The borrowers can accept the deal by simply sending the specified payment and agreeing to the terms.

Eligible borrowers must demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified. Other eligibility requirements include a first-lien mortgage that is at least 12 months old with a loan-to-value ratio equal to or greater than 80%.

“The Streamlined Modification Initiative adds to the suite of home retention tools offered by Fannie Mae and Freddie Mac,” said FHFA Acting Director Edward J. DeMarco. “This new option gives delinquent borrowers another path to avoid foreclosure. We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings.”

The Streamlined Modification Initiative builds on the principles of the Servicing Alignment Initiative by encouraging servicers to resolve delinquencies earlier and in a more consistent and expeditious manner to keep more people in their homes and to minimize losses to Fannie Mae, Freddie Mac and taxpayers. The program expires August 1, 2015.

Since being placed into conservatorships, Fannie Mae and Freddie Mac have completed 2.7 million foreclosure prevention transactions, including 1.3 million loan modifications. In a report released Wednesday by the FHFA, foreclosure starts at Fannie Mae and Freddie Mac in the 4th quarter 2012 fell to 135,000 loans, the lowest level since the 3rd quarter of 2008.